Sorting out Mueller

Today's Statesman has more on the SDS charter amendment's potential impact on Mueller.  The charges, counter-charges, and rebuttal arguments are bewildering.

No wonder:  The SDS charter amendment is a complicated piece of legislation.  Municipal finance and economic development law -- the backdrop for the charter amendment -- is extremely technical, the domain of highly specialized lawyers.  The Mueller agreement (including exhibits) is over 1,000 pages, and spells out, in detail, complicated financing mechanisms for a period stretching over 15-20 years.   No stranger to the Mueller MDA (myself included) could possibly evaluate all of the competing claims.  I doubt the experts who drafted the Mueller MDA understand exactly how the charter amendment will impact Mueller.  It will likely take years of litigation before anyone knows.  (Since any citizen has standing to enforce the charter amendment, I'm confident that some malcontent will sue.)

Some of the claims outlined in the Statesman article, however, don't make much sense, even to this non-expert:

 Rodgers, a real estate investor who started the Stop Domain group, said he took pains to exempt Mueller when he wrote the referendum.

"The city is using Mueller as a distraction," he said, and "ignoring that our economy is in free fall and that they shouldn't be giving taxpayer money to a luxury mall."

Although Rogers says Mueller will be "exempted" from the charter amendment, he seems to acknowledge a few paragraphs later that the amendment will force the city to find an alternative source of funds to pay off the Mueller bonds:  

The city took out $12 million in bonds to help pay the $158.4 million cost of infrastructure at Mueller, such as streets, waterlines and sidewalks. It is paying off those bonds with sales taxes from stores at Mueller.

The bond money would be considered an incentive under Proposition 2, because infrastructure built with it benefits the retail stores at Mueller, said Jim Cousar, a lawyer representing the city.

Similarly, sales-tax rebates benefit the Domain, he said.

Rodgers said the city could find other money sources to pay off the bonds, such as the tax rebates it would no longer have to pay the Domain if Proposition 2 passes.

Bondholders would accept another form of payment, said University of Texas accounting professor Michael Granof.

"The city will find a way to pay it off, because it would kill their credit rating if they default," he said.

But former Council Member Betty Dunkerley, who opposes Proposition 2, notes that the city doesn't have an extra $12 million lying around as the economy slows.

Does the charter amendment exempt Mueller or doesn't it?  Forcing the city to find alternate funding sources doesn't sound like much of an exemption to me. 

Next we hear that the Mueller agreemeent could be tweaked to comply with the charter amendment:

City officials have had several months to amend the Mueller deal and allay their fears that Proposition 2 will ensnare Mueller, Rodgers said. Only a few wording tweaks would be needed, he said.

Cousar disagrees.

"It's a large and complicated agreement with many moving parts," he said. "If you start changing the obligation of the city and rewriting it, other things are likely to be affected."

The City Council recently hired the law firm Vinson & Elkins for $75,000 to ask a judge whether the city can keep paying off the $12 million bonds with sales taxes if Proposition 2 passes.

I've been trying to figure out what "tweaking" would preserve the Mueller MDA.  The charter amendment applies to pending agreements which make the payment of financial incentives "contingent on or subject to the city's appropriation of funds for the payment of the Financial Incentive." The Mueller agreement contains this language in several places, so the charter amendment would clearly apply to it. Perhaps Rogers means the agreement could be modified to remove this language, but that won't happen before election day. And it's unclear, to me at least, that the agreement could be saved by deleting this language after the charter amendment takes effect.  Perhaps Rogers means that the Mueller incentives can be rolled into a Tax Increment Financing District; that would seem to require more than a few tweaks, though. 

The city is also paying for park and pond upkeep at Mueller and for off-site utility projects, such as new water and sewer lines that will serve Mueller and nearby areas. As it sells off parcels of the airport land to Catellus to develop, the city is reinvesting that money in infrastructure at Mueller. Those strategies would be all be banned under Proposition 2, Cousar said.

Rodgers said the claim that pond or park money would be affected by a referendum targeting a retail project is absurd. And he notes that Proposition 2 exempts agreements in which the city shares the cost of infrastructure with a developer.

But Cousar said Mueller wouldn't be exempt, because the city is contributing more money than a typical cost-sharing agreement to get the kind of project it wants.

If Proposition 2 passes, "key financial underpinnings would be affected. It won't be a simple fix," said Matt Whelan, a senior vice president at Catellus. "The agreement we have right now is producing results. We just want to keep doing what we're doing."

There is nothing absurd about arguing that the charter amendment will apply to the park and pond upkeep.   The charter amendment bars financial incentives "in connection with the development or re-development of any real property that includes one or more Retail Uses."  The charter amendment, in other words, doesn't just bar incentives for retail uses, it bars incentives for any development that includes a retail use, even if the incentive is unrelated to the retail use.  (I've argued the charter amendment is overly broad for just this reason.)  

The charter amendment does include an exception for infrastructure improvements.  That exception permits

 cost participation by the city in constructing street or utility improvements (as, for example, over sizing of utility improvements to accommodate future development) consistent with generally applicable city policies and practices, provided that the developer's or owner's share of such costs fairly and reasonably approximates the cost of construction of such improvements suitable to serve the improvements and uses intended by the developer or owner of a Retail Use benefited thereby.

Clear as mud, right?  Who knows.

I'm sure the charter amendment raises dozens of issues for Mueller, and I'm sure Catellus and the City will develop strategies for preserving the Mueller agreement if the charter amendment passes.  I doubt that even the City and Catellus, however,  know for sure which strategies will work and which won't, and won't know until they've been sorted out in court.  A non-expert like me certainly has no chance of sorting it all out.

The main conclusion I draw from all this:  If you hear some layman claiming that the charter amendment won't affect Mueller, rest assured he doesn't really know.      

Subscribe to Austin Contrarian by Email

Comments

[heyzeus]

Much like the Northcross battle, it's all but assured that the only winning party will be the lawyers.

[Michael Miller]

I've read a lot of the MDA, but not all of it. I don't see how Prop. 2 covers the City's expenditures under it. I do see how it would cover identical expenditures if Catellus had owned the land and asked the City to help out with these various assorted development costs. I don't see how it applies to the City spending money and property, etc., to develop its own land.

Let's leave Catellus out of it for a minute. If the City owns land and develops it, nothing in Prop. 2 is violated, even if it builds infrastructure, pays for it from ad valorem and/or sales taxes, etc. If the City sells the land instead, even if to a retail developer, again nothing in Prop. 2 is violated. We might question whether or not the City got the best price or perhaps sold it at a bargain price, and the latter could have a similar effect and we should prevent that too if there is a feasible way. But Prop. 2 doesn't prevent a bargain price (that's another battle).

The actual deal with Catellus, in substance, is getting Catellus to help the City with the development, including Catellus taking on paying some of the costs, and Catellus in turn gets some of the sales proceeds. The fact that the City didn't get Catellus to take on all of the expenditures doesn't change the fact that the City's expenditures on its land are not prohibited by Prop. 2. Surely, repaying a loan (the $12 million) is not covered by Prop. 2. If anything, spending the loan proceeds in a certain might (have) run afoul, but not repaying the loan to the lenders. I'd be happy to discuss any of the specific MDA obligations, in case there are any that look more likely to come within Prop. 2.

[Michael Miller]

oops. I left out "way" after "certain" in the third to last line above.

[AC]

As I read the MDA, the City is not technically developing its own land. It conveys parcels to Catellus ("Takedowns," in MDA jargon), which then develops them, according to a schedule negotiated by the city. It doesn't seem to me, then, that the City could avoid Prop 2 by arguing that it is developing its own land. (I've disclaimed any expertise on the Mueller MDA, so I don't mind being corrected.)

The bond argument is murky to me. I imagine the argument would run something like this: By taking sales tax money and using it to finance a (now) prohibited investment in project costs, the city is effectively rebating sales taxes to the project developer. In other words, it is making a "payment or rebate of [a] general or special sales or ad valorem tax, . . . resulting from taxable activity on such property." The charter amendment's restriction is not limited to payments or rebates to the developer or property owner.

The city will never make this argument, of course, but it has to worry about arguments that others might make.

I do see a couple of counter-arguments. One is that making payments on the public debt under the MDA is not specifically "subject to annual appropriations" -- the language that triggers Prop 2. Another is that making payments to a lender is not a "Financial Incentive"; the project cost investment was the "Financial Incentive," and it was made before Prop 2 took effect.